3 Things You Don’t Know About Cash Flow That Could Harm Your Business


97% of business owners (hard working entrepreneurs just like you) ask themselves 1 question without fail every single day.  Do you know what that is?

Do I (or am I going to) have enough cash to pay x?

Unfortunately, that is without a doubt the worst question you could ask yourself.  Knowing exactly where you stand financially (i.e. your cash flow) is critical to your business.  Your survival hinges upon your ability to cover all taxes, payments to suppliers and operating costs as they come due.

So if cash flow is so vital – why is this question so very bad for you and your business?

There are 3 common mistakes that I see business owners making every single day – and they relate to that question you’ve been asking yourself.  I would like to share them with you right now so you can stop making them and start getting on top of your cash flow position.

  1. Stop looking for cash flow in all the wrong places – when you ask yourself the question about cash, the most likely thing that you will do next is look at your bank balance. Unfortunately, your bank account merely shows your cash on hand but it will never tell you what your cash flow is or (more importantly) HOW to improve it. Seeing that you do not have any cash  is NOT enough.  You need to know what your cash flow position is and where specifically cash is trapped in your business.  Once you know where the cash is trapped, it will be a lot easier to take action to unlock it and make it available for use in your business.
  2. Stop relying on a cash position estimate – this second point is related to my first one.  I see so many business owners just like you making this mistake every day.  And it is not entirely your fault because many of your accounting reports may be incorrectly labelled.  Most accounting software packages contain a report that shows your bank balance and lets you project what your cash position might be in the future – for example 30 days from now.  They often incorrectly label this a cash flow projection. Actually what you are really doing by looking at this report is very subjective. It takes your bank balance (which we talked about before) and adds all the sales you might have in the future minus the bills you might pay.  Unfortunately, this involves a lot of speculation about what might or might not happen in the future and it still doesn’t give you a clear picture of what you need to do to unlock cash in your business.  More often than not, this exercise will lead to you focusing more and more of your time and resources on sales – and that activity may actually worsen your cash flow position. Especially if you sell on credit terms or if you sell stock that you need to order in and pay for today.
  3. Waiting for your bookkeeper or accountant to tell you what your cash flow position is – this is probably the worst mistake of all because it means that you might be waiting for weeks or months with little or no money in your account to pay bills or wages.  This is madness.  You need to be able to print your profit and loss and balance sheets today and calculate your cash flow right now.  It’s not that hard to do and the entire process will take you less than 15 minutes.

 

The important thing to remember is that cash and cash flow are not the same thing.  If your company is profitable on paper yet it maintains a negative cash flow for an extended period of time, eventually it will go under. Being able to calculate and monitor your cash flow position regularly is critical to your company’s health and survival.  You can have the most brilliant product or service but if you don’t have positive cash flow, your business will eventually go under.

If you want to learn how to calculate your cash flow quickly and easily, I recommend that you check out Chapter 1 of Financial Foreplay.  It’s been endorsed by the most recognized accounting software brands in the world and it can help you get on top of your numbers and whip your business into shape today.

ImagineeringNow
About The Author
Rhondalynn's life changed forever after the loss of her mother due to a senseless tragedy in 1992. She decided that despite her formal training and a promising career as a lawyer and chartered accountant, she wanted to do something more. So despite the fact she had already invested 10 years of her adult life in university and articling, she did the unthinkable. She left her high paid job as Commercial Manager for one of the largest corporations in the country, she re-trained herself in the sciences of the mind and she discovered a passion for writing and sharing her knowledge with business owners and executives. Rhondalynn has distilled the secrets to business success - that she learned from her life experience and working in GM level roles with Price Waterhouse Coopers, Max Factor, Village Cinemas, and Coles Group Ltd. - and produced a simple step-by-step process that you can apply to your business to boost your sales and bottom line. Rhondalynn can help you put strategies in place to grow your bottom line and ensure that your customers would never think of going elsewhere. She is the leading expert on harnessing the power of your brain and using it to improve your financial results in business. Rhondalynn is the author of On The Shoulders of Giants, Imagineering Your Destiny, Sobre Hombros deGigantes, Financial Foreplay, and Sales Seduction. She has appeared on CNN, Bnet/CBS, Channel 7, Channel 9, Kochie's Business Builders and 3AW, and writes for Yahoo, MYOB, Fast Thinking, Sunday Life, Dynamic Business, Business Spectator and Australian Retailer.

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